Essay: Analysis Of Cash Flows And Other Comprehensive Income Statement Of Cromwell Property Group.

1. From your firm’s financial statement, list each item of reported in the cash flows statement and write your understanding of each item. Discuss any changes in each item of cash flows statement for your firm over the past year articulating the reasons for the change.
2. Provide a comparative analysis of your company’s three broad categories of cash flows (operating activities, investing activities, financing activities) and make a comparative evaluation for three years. Other comprehensive income statement
3. What items have been reported in the other comprehensive income statement
4. Explain your understanding of each item reported in the other comprehensive income statement
5. Why these items have not been reported in income statement/profit and loss statement accounting for croporate income tax
6. what is your firm’s tax expense in its latest financial statements?
7. Is this figure the same as the company tax rate times your firm’s accounting income? Explain why this is, or is not, the case for your firm.
8. comment on deferred tax assets/liabilities that is reported in the balance sheet articulating the possible reasons why they have been recorded.
9. Is there any current tax assets or income tax payable recorded by your company? Why is the income tax payable not the same as income tax expense?
10. Is the income tax expense shown in the income statement same as the income tax paid shown in the cash flow statement? If not why is the difference?
11. What do you find interesting, confusing, surprising or difficult to understand about the treatment of tax in your firm’s financial statements? What new insights, if any, have you gained about how companies account for income tax as a result of examining your firm’s tax expense in its accounts?

Cash Flow from Operating Activities

The following discussion shows the details about the recorded items by Cromwell Property Group in their 2017 Consolidated Statement of Cash Flows:

Cash Flow from Operating Activities: Cromwell Property Group has reported some specific items under the operating activities. They are payment and receipts from the course of business operations, distribution received, interest received, finance cost payment and income tax payment (cromwellpropertygroup.com 2018). The analysis of the cash flow statement shows that receipts from the course of actions decreased in the year 2017 than the past year; and they are $342 million in 2017 and $354.7 million in 2016. The reason for this decrease can be the decrease in revenue for the company. On the contrary, Cromwell Property Group had increase the payment for course of operation in 2017 than 2016 due to the increase in credit purchase; they are $154.4 million in 2017 and $150.2 million in 2016. There is a decrease in the interest received by Cromwell Property Group and they are $2.1 million in 2017 than $4.2 million in 2016 (cromwellpropertygroup.com 2018). Reduction in investment might be the reason for this. In addition, Cromwell Property Group has received more distribution in 2017 from 2016; that is $24.6 million from $8.7 million and increase in profit in the investment company can be the reason for this. Cromwell Property Group was required to pay more finance cost in 2017 than 2016; that is $55.4 million than $54.8 million. Cromwell Property Group also had to increase the payment for income tax as a result of increased profitability; that is $4.6 million in 2017 from $3.5 million in 2016 (cromwellpropertygroup.com 2018).

Cash Flow from Investing Activities:  There are many items under investing activities for Cromwell Property Group. Cromwell Property Group had to increase the investment for the purchase of investment property and they are $139.3 million and $74.9 million in the years 2017 and 2016 respectively. At the same time, the company has received less proceeds from the sale of these investment properties in the year 2017 (cromwellpropertygroup.com 2018). After that, Cromwell Property Group has decreased the payment for equity investment in the year 2017; and they are $17.9 million and $18.6 million in the year 2017 and 2016 respectively. Cromwell Property Group has also reduced the payment for intangible assets in 2017 than the past year; and they are $0.4 million in 2017 and $0.9 million in 2016. Cromwell Property Group had made more purchase of property, plant and equipment in 2017 as compared to 2016; they are $1.3 million in 2017 from $0.7 million in 2016; and the objective of the company was to increase the asset base of the business for more return from assets. In 2017, Cromwell Property Group reduced the repayment for loans over the last year; they are $1.2 million and $12.6 million in the years 2017 and 2016 respectively. In the year 2017, Cromwell Property Group has acquired the disposal group for $145.6 million that was nil in the year 2016 (cromwellpropertygroup.com 2018).  

Cash Flow from Investing Activities

Cash Flow from Financing Activities: This head of cash flow of Cromwell Property Group also includes crucial items. In the year 2017, Cromwell Property Group has increased the borrowings from the bank than the past year; that is $302.7 million in 2017 from $186.9 million in 2016. Major capital requirement might be the reason for the same (cromwellpropertygroup.com 2018). At the same time, Cromwell Property Group increased the repayment of their loans in 2017 than 2016; that is $95.6 million than $79.8 million.  Proceed from the staple securities is a source of income for Cromwell Property Group and minor increase in this income for Cromwell Property Group can be seen in 2017 as compared to 2016; that is $1.1 million from $1 million. Increase in profit in 2017 contributed towards the increase in dividend payment for the shareholders; that is $139.9 million from $130.9 million. There was not any outflow related to the issue cost of equity in 2017 that was $0.1 million in 2016. $2.6 million was the outflow for the company in 2017 for settling the derivative financial instrument and it was nil in 2016 (cromwellpropertygroup.com 2018).

The following figure shows the movement in the major heads of cash flow for Cromwell Property Limited from 2015 to 2017:

Figure 1: Analysis of the Cash Flow Heads of Cromwell Property Group

(Source: cromwellpropertygroup.com 2018)

The above figure indicates towards an increasing trend in the cash inflow from operating activities from the year 2015 to 2016 of Cromwell Property Group. They are 144.2 million in 2015 and $159.1 million in 2016. The reasons that helped in setting this trend are increase in receipts from the course of action. However, there was an increase in the payment of course of action and decrease in the receipts that led to the decrease in this cash inflow in 2017 that is $154.3 million (cromwellpropertygroup.com 2018).

The above figure indicates towards the presence of a continues increasing trends in the cash outflow from investing activities for Cromwell Property Group; they are $51.4 million in 2015, $176 million in 2016 and $189.7 million in 2017. Increase in the payment for some aspects like property, plant and equipment, borrowings, loans and others is the main reason that set this increasing trend (cromwellpropertygroup.com 2018).

The above figure shows an improvement in the cash flow from financing activities for Cromwell Property Group from 2015 to 2017; they are -$94 million in 2015, -$50.8 million in 2016 and $59.9 million in 2017. The main reasons for the improvement in cash flow for Cromwell Property Group are the increase in the borrowings, proceeds from stapled securities and others (cromwellpropertygroup.com 2018).

Cash Flow from Financing Activities

The items reported in the 2017 Consolidated Statement of Comprehensive Income by Cromwell Property Group as other comprehensive income items are Items that may be reclassified to profit or losses, ‘Exchange differences on translation of foreign operations’ and ‘Income tax related to these items’ (cromwellpropertygroup.com 2018).

One of the major items in the other comprehensive income statement is the profit or loss reclassification and it is an important tool to maintain the integrity of the profit or loss of the companies. This aspect helps the users in gaining the correct information about the profit or loss related financial transactions that take place in the financial year. Apart from this, the users can compare the profit or loss of the companies in a better manner by this aspect (Ball et al. 2015).

The main role of exchange difference of the transactions of foreign operations is the conversion of the currency of foreign subsidiary entity into the currency of the parent entity. Business organizations become able in the conversion of the foreign currency into the parent company currency at the time to the process of consolidation. In this process, the re-measurement of the foreign currencies is done into the currency of the parent company so that the profit or loss of the company can be converted into the currency of the parent company (Chong, Chang and Tan 2014).

The above discussed two aspects are subject to taxation under the Australian taxation law and thus, the companies are required to carry on the taxation operations on these two aspects. It is required to show this taxation expenses in the other comprehensive income statement (Stice and Stice 2013).

The users of the financial statements consider the other comprehensive income statement a specific statement that provides a diversified view of the net income and comprehensive income of the business organizations. On the other hand, the companies become able in providing a diversified view of their profitability with the assistance of this statement. In this context, it needs to be mentioned that the items under the other comprehensive income statement are not directly connected with the generation of profit. Thus, in the presence of all these reason, these items are not included in the income statement or the profit or loss statement of the organizations (Amorim 2014).  

According to the regulations of Australian taxation law, it is required for Cromwell Property Group to do their taxation as per the regulations of Australian Taxation Office. 30 per cent is the applicable tax rate for Cromwell Property Group for the financial year 2017 and 2016. From the analysis of the 2017 Annual Report, it can be observed that Cromwell Property Group has reported $1.5 million for 2017 and $3.5 million for 2016 as the tax expenses (cromwellpropertygroup.com 2018).

Movement in Major Heads of Cash Flow for Cromwell Property Group

The financial statements of Cromwell Property Group states that there is difference in the tax expenses as per the applicable tax rate and the reported tax expenses; and some reasons can be held responsible for this difference (cromwellpropertygroup.com 2018). The acquisition of some business entities by the Cromwell Property Group trust is one of the reasons as this acquisitions led to the adjustments with the taxation expenses. The impairment of fair value can be considered as another major reason for creating the difference as this aspect contributed towards the taxation adjustments under the tax reconciliation statements. Apart from this, Cromwell Property Group adjusted the taxation expenses of previous year with the current year taxation expenses that led to the difference in taxation expense (cromwellpropertygroup.com 2018).

According to the 2017 financial statements of Cromwell Property Group, the reported amount of deferred tax assets by the company are $3.4 million and $1.3 million for the year 2017 and 2016 respectively. Apart from this, the reported differed tax liabilities of Cromwell Property Group for the year 2017 and 2016 are $0.9 million and $1.9 million respectively. In Cromwell Property Group, there are some specific reason for the development of deferred tax assets and liabilities (cromwellpropertygroup.com 2018). The difference in tax rate at the time to recover the settlement of assets and liabilities is considered as the main reason for the development of both the deferred tax assets and deferred tax liabilities in Cromwell Property Group. Some major factors for the generation of deferred tax assets are transaction costs, employee benefits, recognition of taxation loss, various investment schemes and others. On the other hand, the management’s right for intangible assets is the main reason for deferred tax liabilities (Rimmer, Smith and Wende 2014).

Cromwell Property Group has reported $1.2 million and $1.7 million as current tax assets for the year 2017 and 2016 respectively. On the other hand, the company has recorded $1.7 million and 2.2 million as the current tax liability of the company for the year 2017 and 2016 respectively (cromwellpropertygroup.com 2018). Companies use to report the income tax expenses for the current year in the income statement that is payable in the next year. At the same time, income tax payable refers to the tax expenses that companies are required to pay as they did not pay the whole amount of taxable expenses for the last year. This aspect creates the difference (Alexander 2013).

Cromwell Property Group has reported $1.5 million for 2017 and $3.5 million for 2016 as the tax expenses in the income statement where $4.6 million for 2017 and 3.5 million for 2016 are the tax expenses for the company in the statement of cash flow (cromwellpropertygroup.com 2018). Thus, difference can be seen. The income tax expenses in income statement are the income tax payable for the current year and it is required to be paid in the next financial year. However, the cash flow statement shows the payment of income tax for the current year and it can be income tax payable for the last year or the advance payment of income tax. This aspect creates the difference (Richardson 2015).

It needs to be mentioned that Cromwell Property Group has carried out their taxation expenses in the most interesting way by complying with all the required standards of Australian taxation. At the same time, the company has provided the taxation notes to the financial statement that include all the required clarification and justifications of taxation treatment of the company. For this reason, there is not anything confusing or surprising in the taxation treatment of Cromwell Property Group. By observing the taxation treatment of Cromwell Property Group, one can get effective insight about the taxation treatment done by the large organizations.

References

Alexander, R.M., 2013. Tax transparency. Business Horizons, 56(5), pp.543-549.

Amorim, C.F., 2014. Reporting comprehensive income: Evidence from Portuguese listed companies (Doctoral dissertation, NSBE-UNL).

Ball, R., Gerakos, J., Linnainmaa, J.T. and Nikolaev, V.V., 2015. Deflating profitability. Journal of Financial Economics, 117(2), pp.225-248.

Chong, L.L., Chang, X.J. and Tan, S.H., 2014. Determinants of corporate foreign exchange risk hedging. Managerial Finance, 40(2), pp.176-188.

Cromwellpropertygroup.com. (2018). [online] Available at: https://www.cromwellpropertygroup.com/__data/assets/pdf_file/0015/22920/CMW-2017-Annual-Report-final-web.pdf [Accessed 24 May 2018].

Cromwellpropertygroup.com. (2018). [online] Available at: https://www.cromwellpropertygroup.com/__data/assets/pdf_file/0023/22919/AnnualReport_CMW_2016.pdf [Accessed 24 May 2018].

Cromwellpropertygroup.com. (2018). [online] Available at: https://www.cromwellpropertygroup.com/__data/assets/pdf_file/0022/22918/AnnualReport_CMW_2015.pdf [Accessed 24 May 2018]

Richardson, D., 2015. Company tax cuts: an Australian gift to the US internal revenue service. TAI Briefing Paper. 

Rimmer, X., Smith, J. and Wende, S., 2014. The incidence of company tax in Australia. Economic Round-up, (1), p.33.

Stice, E.K. and Stice, J.D., 2013. Intermediate accounting. Cengage Learning.